Whatsoever is paid, is paid according to the intention or manner of the party paying ; whatsoever is received, is received according to the intention or manner of the party receiving.
Upon payment of money, the debtor may direct in what manner the money must be appropriated, and the creditor cannot alter this appropriation without the consent of the debtor. And this appropriation by the debtor may be implied ; as, where a particular debt of a precise sum being demanded, he pays it, though others be due at the same time. But in the absence of any appropriation by the debtor, the creditor may make such appropriation as may suit him ; as, if A owe B two sums of money, one barred by the Statute of Limitations and the other not ; or one in dispute and the other not ; or one on covenant and the other on.simple contract ; if no appropriation be made by the debtor at the time of payment, the creditor can apply the money in discharge of the debt barred by the statute, or in dispute, or of the simple contract debt ; but not in discharge of an unlawful debt, so as to enable him to sue for the lawful.
If, however, neither party make an appropriation, the law appropriates the payment to the oldest debt ; or, in case of one part of the claim being barred by the Statute of Limitations, to the debts generally, as the circumstances of the case may seem to require. The debtor, moreover, is required to direct the appropriation at the time of payment, but the creditor may do it at any time afterwards, before the appropriation be questioned.
The general rule to be observed is, that priority of debt draws after it priority of payment, the oldest debt being entitled to be first satisfied. The rule applies only to legal obligations ; and in its strictness is not adopted in courts of equity ; for, where no particular appropriation has been made by either party at the time of payment, a court of equity will be influenced in the appropriation by the consideration of which is the most onerous debt, in order to its discharge, in preference of one less onerous, or in respect of which the creditor has a remedy elsewhere or otherwise.
Where one of several partners dies ; the partnership being in debt, and the survivors continue to deal with a particular creditor of the firm who joins the transactions of the old and new firm into one account ; the payments made from time to time by the surviving partners will be applied to the old debt. In which case it is presumed that all the parties have consented to such appropriation.
So, where under a will ; of which some of the partners of a bank were executors ; the estate was made liable to a specified amount for the debt of a customer of the bank due at the death of the testatrix ; the account was continued in the ordinary form of banking accounts charging the customer with the whole debt from time to time in the half-yearly balances ; and at a later period one of the executors, also a partner in the bank, wrote a letter to the customer which amounted to a representation that the payments in, to his account, were appropriated to the later, unsecured, items of the debt. It was held that an appropriation of past payments could not be made by an executor so as to revive a lapsed liability of his estate, and that the latter had not a retrospective operation; and also, that the subsequent payments by the creditor, made on the faith of the representations in the letter, must be appropriated to the later items of debt.